The Wealthsimple story
Wealthsimple is a leading robo-advisor in Canada. I have often penned that Wealthsimple is Canada’s most famous robo. They are known for their well-crafted television ads, and other marketing and social media efforts promoting sensible, low-fee investing. The firm also offers an online brokerage service, Wealthsimple Trade, and in January 2020 began offering a hybrid savings/chequing account called Wealthsimple Cash.
Late in September, the Globe and Mail reported that Wealthsimple is in talks with several U.S. Venture Capital firms to raise another $100 million in financing. A venture capital firm will invest in a company in exchange for partial ownership. That article also suggests Wealthsimple is setting the table for an eventual initial public offering (IPO). With an IPO, a company will then trade on stock markets. It’s another way for a company to raise money, but of course it will dilute the current company ownership. Ownership will then be split with the new investors who buy the stock.
Wealthsimple has $8.4 billion in assets under management and its growth record is impressive. But what will likely grab the attention of the venture capitalist is the growth within their Wealthsimple Trade platform launched in March of 2019. According to that Globe article Wealthsimple accounted for 18% of trading accounts opening in Canada in the second quarter. And they doubled the total Wealthsimple client base from 250,000 to 500,000 in the first six months of 2020.
Those are some great growth numbers. But Wealthsimple and their backers have spent heavily to acquire those clients and assets under management. Power Financial Corp., wealth management firm IGM Financial Inc. and VC firm Portag3 Ventures have collectively invested $315 million in Wealthsimple.
If they are looking to go to the stock markets with an IPO, the numbers will be on display, so that investors can evaluate the financial health of the company. Apparently, the company is going to be valued at $1 billion. I’m not a stock analyst, but I think that might be a stretch. Robo-advisors are known for their low fees. While that can be great for clients, it makes it more difficult to create the revenues required to generate profits. Wealthsimple charges just .40% to .50% on assets for their robo accounts, and they offer free trades on Wealthsimple Trade. With Wealthsimple Trade, they make monies from the currency conversion charges (1.5%) when traders buy U.S. stocks.
This is just my opinion, but I think investors will end up paying for that impressive growth—and turning a profit will not be so simple.
We’ll certainly keep an eye on this story. When or if they become a publicly traded company, we’ll see the numbers in their quarterly financial reports. I’m looking forward to looking under the hood.
Goldman Sachs says: 6% annual returns for U.S. stocks over the next 10 years
That is an interesting estimate. And of course, any guess about the future returns of the stock markets are a guess, a prediction. And as the saying goes: It is difficult to make predictions, especially about the future (Mark Twain).